Commodity crash is new road block for clean energy

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(Bloomberg) -- The global crash of commodity prices and a looming increase in U.S. interest rates threaten to put a damper on the rapid rise of clean energy in the developing world, Goldman Sachs Group Inc.’s chief strategy officer told investors on Tuesday.

Nations dependent on metals and mining for income rode China’s demand for commodities in recent years to build up their economies and envision big investments in wind and solar power. Now, with growth slowing in China and elsewhere, the same countries face declining revenue that may make environmental measures a tougher sell, Goldman’s Stephen Scherr said during a forum on green finance the company hosted in New York.

“Where they were inclined for a host of different reasons to be more aggressive regulators of coal, they are probably less inclined to do that, in part because it has negative consequences" for the local economy, Scherr said. “Those countries are hell-bent on maintaining that middle-class and not losing it."

An interest-rate increase by the U.S. Federal Reserve also may make it harder to finance environmental work in emerging economies, where “investors are going to demand more of a risk premium," Scherr said.

The market for “green bonds" to finance wind and solar power, clean-water infrastructure and other projects has slowed this year, amid concerns over the global economy. After more than doubling in each of the last two years, to $38.8 billion in 2014, the market is expected to grow to about $40 billion this year, Bloomberg New Energy Finance estimated last month.

Still, demand for the projects isn’t going away, Scherr said. On Monday, Goldman said it had set a target of completing $150 billion worth of clean-energy deals over the next decade, almost quadrupling its previous goal of $40 billion set in 2012. Beyond the environmental rationale for clean energy, the investments make money, Scherr said.

Businesses “are looking at opportunities in the environmental space as being very real," he said. The projects “stand on their own footing. They can be justified outside the realm of just charity."